Qantas's Short Hop

Australia’s Qantas Airways got back into the air Monday, with outraged passengers wondering what that was all about after Alan Joyce, the Qantas CEO, took the unprecedented step Saturday of grounding the entire global fleet of 108 planes.

That left 70,000 confused passengers, who weren’t notified in advance, on the ground across the world. Hordes of furious would-be flyers lined up at ticket counters everywhere. It was a startlingly 19th Century show of managerial machismo. Joyce decided to force a dramatic showdown by grounding Qantas at short notice and locking out staff from the next workday – a true horror show for Halloween. The Australian government was certainly horrified enough, ordering an end to the country’s worst labor action in more than a decade before things got worse.

"It's an unbelievable decision. It's a hard decision. We have no alternative. This is the fastest way to ensure the airline gets back in the air," Joyce said, blaming the unions for "trashing our strategy and our brand."

This was a day after he asked the Qantas board for a pay hike for himself, from A$3million to A$5million. The board passed his salary-hike and backed his strategy to nuke employees and passengers. But this plan was never disclosed at the annual general meeting on Friday which preceded his dramatic fleet-grounding announcement of Saturday. Deliberate withholding of such information during the AGM, raises issues of transparency and governance for a publicly listed company.

Interestingly on the Monday trade, Qantas share price rose 5 percent to A$1.62 indicating investors agreed with the need to flush out the attrition tactics of the unions and move on.

It worked. The government called for an emergency Saturday night sitting of the three-man Fair Work Australia (FWA) panel to decide termination or suspension of industrial action and grounding of the fleet, to push the parties back to the negotiating table.

The FWA panel ordered immediate termination of all strikes and grounding of the fleet. It decreed a 21-day window for the three unions involved and Qantas management to agree terms, failing which the government would intervene to force resolution.

Qantas International in the red A$200million annually

The international operations pile up huge losses but are subsidized by the highly profitable domestic subsidiary Jetstar Airlines and the freight hauling arm.

Therein lies the secret to the Qantas makeover: Jetstar operates with a substantially New Zealand recruited crew paid in NZ currency, following local NZ terms and scales which are significantly less than Australian benchmarks.

It follows the low-cost, low-fare, no-frills formula. It gets passengers from A to B without fuss. It outsources pilots and cabin crew at ex-Australia rates.

In August Alan Joyce announced that the carrier plans to shed 1,000 jobs. It will establish two new brands, both based in Asia, as budget carriers using foreign crew and pilots. The strategy was to replicate the Jetstar success to gradually replace the loss-making Qantas International.

This unveiling of the new strategy was announced together with a more than doubling of net profits to A$250million for the group.

The unions could see the writing on the wall: jobs would migrate overseas, salary leverage would shrink and the center of gravity of Qantas manning would shift offshore. So naturally the unions of the aircraft mechanics (ALAEA), Transport Workers Union and the Australian & International Pilots Association challenged the strategy because it fundamentally displaces them. In furtherance of their self-preservation cause they undertook rolling work disruptions as a negotiating tactic in the hope of winning pay rises and assurances of job security.

Alan Joyce persuaded the Qantas board that there was more in it for the shareholders to go with his scheme. They agreed, backed his fight and upped his reward to make it happen. Is that not the story of capitalism, free markets and globalization?

Political nexus of Labour Government & Unions

The Labor Government was blind-sided by the speed of Alan Joyce's strike. Transport Minister Anthony Albanese was riled by the Qantas grounding decision "made on a Saturday morning with notice to the government mid-afternoon one day after the AGM."

"This is a startling over-reaction," declared Richard Woodward, Vice-President of the Australian & International Pilots Association (AIPA). "The board should move to sack Mr Joyce immediately. He played out his tough-guy fantasies on the passengers!"

Tony Sheldon, national secretary of the Transport Workers Union which represents baggage handlers and ground crew, is standing for leadership of the Labor Party along with six other contenders, at the national party conference on Dec. 2.

The Gillard Government replaced the Industrial Relations Commission with Fair Work Australia after passing The Fair Work Act 2009. Of the 11 Fair Work Commissioners appointed by the Gillard administration, nine are former union officials and two are career bureaucrats.

Amazing contempt for customers. Not the Harvard playbook.

There can be no more self-destructive business decision than victimizing your own customers. Alan Joyce ensured maximum inconvenience to unsuspecting Qantas passengers. They were suddenly left stranded at domestic and international airports without a plan. They were scammed by their own national airline.

That will not be forgotten nor forgiven easily. The brand equity which the world's tenth largest airline has built over decades of reliability has been trashed by its own CEO.

Perhaps that was his plan. He is a mathematician by academic training. He may have a calculus of net benefit all worked out. After all people are mere 'factors of production' in the economic equation. What matters is greater profits for the haves.